Mass Media Not So Massive

• Patrick Seitz
• On 5:56 pm EDT, Friday October 23, 2009

Radio and television broadcasters are decidedly old media. But the sector could soon get an assist from new media and mobile technologies.

Faced with a slow decline in listeners and viewers, terrestrial broadcasters hope increased adoption of radio tuners in portable media players and the emergence of mobile digital television will give them a much-needed boost.

Audiences have been turning elsewhere for entertainment and news, including the Internet, cable TV, satellite radio, video games, and stored content on Apple (NasdaqGS:AAPL - News) iPods and other portable devices.

Declining audiences coupled with reduced advertising spending because of the recession have been a double-whammy for the broadcast industry.

But the industry is showing signs of stabilizing, analysts say. Plus, radio and TV companies hope to find future growth from the Internet and portable devices.

Radio and TV broadcaster stocks have bounced off their lows and rallied the last couple of months.

IBD's Media-Radio/TV group currently ranks No. 12 out of 197 industry groups. Three months ago, it ranked No. 164.

"While the outlook for radio is improving over what it was in the depths of the downturn four or five months ago, we're still not out of the woods yet," said Mark Fratrik, vice president with BIA Advisory Services. "The bounce up in (stock) prices has gotten a little carried away, just because they lost 90% to 95% of their values. But there is some rebound. There is some renewed hope."

1. Business

IBD's radio and TV media group includes 26 companies. While 17 of them are based in the U.S., the four largest companies by market value are foreign. Many trade under 10.

The group does not include large diversified media companies such as News Corp. (NasdaqGS:NWS - News), CBS (NYSE:CBS - News) and Walt Disney (NYSE:DIS - News), though these firms operate radio and TV stations in addition to producing content.

CTC Media (NasdaqGS:CTCM - News) of Moscow is the group's largest, with a market capitalization of $2.93 billion. It broadcasts entertainment programming in Russia and neighboring countries through its CTC Network, which has about 350 affiliates, including 21 owned-and-operated stations.

Astral Media of Montreal is the second largest of the group. It is Canada's largest radio broadcaster, with 82 stations. Astral Media also has pay TV channels and outdoor advertising and Web businesses.

Central European Media Enterprises (NasdaqGS:CETV - News) is next in size. It's based in Bermuda, with principal operations in the Czech Republic. The company, also called CME, is the leading television broadcaster in Central and Eastern Europe.

Corus Entertainment (NYSE:CJR - News) of Toronto is fourth largest. It's one of Canada's leading diversified media companies, with operations spanning radio, broadcast and cable TV and animated children's programming.

The largest U.S. companies in the group are TV station owner Sinclair Broadcast Group (NasdaqGS:SBGI - News) and radio broadcaster Entercom Communications (NYSE:ETM - News).

The companies in the group rely on advertising spending for most of their revenue. But ad spending has decreased in lockstep with a slowdown in consumer purchasing because of the recession.

Broadcasters have cut operating expenses in response to the ad spending decline. Many have axed high-priced radio and TV personalities because of lower ratings from the shift to other media.

Radio and TV firms are concentrating on their strengths in local markets. Their Web sites provide local news and information on fun things to see and do. Many broadcasters have gotten into the events business, organizing wedding and bridal shows and home and garden events.

Radio and TV broadcasters can cross-promote through their stations, Web sites and sponsored events, Fratrik says. The stations provide a "great loudspeaker." Plus, they have local ad sales staff and relationships with advertisers, he says.

Name Of The Game: Lower operating costs for core broadcasting businesses, while investing in areas of high-growth potential such as local market Web sites.

2. Market

Radio and TV broadcasters serve two main customers: the audience that tunes in, and the advertisers that pay to pitch their products to those viewers and listeners. Those eyes and ears -- and the advertising dollars that follow them -- have grown increasingly fragmented over the last decade.

Radio and TV broadcasters must compete now with Internet radio services like Pandora, video sites like Google's (NasdaqGS:GOOG - News) YouTube, social networking services like Facebook and News Corp.'s MySpace, video game consoles, digital music players and so forth.

All of those things are drawing away consumers from traditional broadcast media.

Advertisers have lowered their ad spending on broadcasters and are shifting spending to Web sites, cable TV and elsewhere to pursue consumers.

But some signs suggest that advertising declines have stopped and spending has been reset to a lower, sustainable level.

"There's obviously been a shift in media consumption habits and in advertising habits. That's been happening for awhile. But it has run its course (for now)," said Robin Flynn, an analyst with SNL Kagan. "The industry has been resized and can rebuild from there."

In 2008, the U.S. broadcast sector suffered deep declines as the recession intensified.

Radio station revenues fell 8.6% to $19.5 billion and TV station revenues dropped 1.6% to $21.7 billion, SNL Kagan reports.

This year, SNL Kagan estimates that revenues will slide even further, with declines of 17% for radio and 16% for TV stations.

3. Climate

Even if the recession is ending, as some economists are speculating, analysts don't expect advertising spending to bounce back right away. Advertisers have to be convinced that consumers are in a buying mood first. With unemployment nearing 10%, many consumers are still feeling cautious.

Local broadcasters also hope to pick up more ad revenue at the expense of newspapers, another old media in slow decline, she says.

4. Technology

Radio stations got an unexpected boost from Apple in September, when the tech giant for the first time added an FM radio tuner to one of its market-leading iPod music players. For now, only the iPod Nano has the feature, but broadcasters hope Apple will put tuners into all of its mobile devices, including the iPhone.

If radio broadcasters can get tuners into portable music players and cell phones, that could lead to more radio listening, Fratrik says.

Meanwhile, HD Radio -- the digital upgrade to analog AM and FM radio -- is slowly but surely gaining listeners.

HD Radio features improved sound quality and "hidden channels" of programming through multicasting.

But consumers need to buy new radios or cars with the new radios to hear HD Radio over the air. However, many stations are streaming the extra channels of niche programming on their Web sites.

For TV broadcasters, the most exciting new technology on the horizon is mobile digital TV. Starting next year, you can expect to see portable devices and even cell phones capable of receiving live over-the-air television.

"TV station operators see that as a big growth area," Flynn said. "If mobile works for local TV stations, that could be huge."

5. Outlook

Analysts expect the radio and TV broadcast business to return to modest but tangible growth next year.

Radio could see a 2% increase in revenue in 2010, SNL Kagan estimates. TV broadcasters could get a 5% increase in sales. Both will benefit from an improving economy and spending on political ads.

"The industry is looking forward to some growth and improvement in the climate next year," Flynn said. "There's more firmness to the ad environment."

On the negative side, many broadcasters are saddled with heavy debt loads that they have to pare down, Flynn says.

Upside: With broadcast advertising revenue reset to a lower level, stations are hoping growth will return. But they're also bolstering the local-focused Web sites and looking to mobile devices for a lift.

Risks: Old media like radio and TV broadcasters could continue to lose ground against Internet services.

A lethargic turnaround -- or double-dip recession -- could temper growth prospects.

Buzz up!